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Business Segments
 9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Business Segments Business Segments

The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services and Private Banking, and Treasury and Other.  The Company’s internal management accounting process measures the performance of these business segments. This process, which is not necessarily comparable with the process used by any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for credit losses, and capital.  This process is dynamic and requires certain allocations based on judgment and other subjective factors.  Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP.  Previously reported results have been reclassified to conform to the current reporting structure.

The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis.  The basis for the allocation of net interest income is a function of the Company’s assumptions that are subject to change based on changes in current interest rates and market conditions.  Funds transfer pricing also serves to transfer interest rate risk to Treasury.  However, the other business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions within guidelines.

The provision for credit losses reflects the actual net charge-offs of the business segments.  The amount of the consolidated provision for loan and lease losses is based on the methodology that we use to estimate the Company’s consolidated Allowance.  The residual provision for credit losses to arrive at the consolidated provision for credit losses is included in Treasury and Other.

Noninterest income and expense includes allocations from support units to business units.  These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage.

The provision for income taxes is allocated to business segments using a 26% effective income tax rate. However, the provision for income taxes for the Company’s Leasing business unit (included in the Commercial Banking segment) and Auto Leasing portfolio and Pacific Century Life Insurance business unit (both included in the Retail Banking segment) are assigned their actual effective income tax rates due to the unique relationship that income taxes have with their products. The residual income tax expense or benefit to arrive at the consolidated effective income tax rate is included in Treasury and Other.

Retail Banking

Retail Banking offers a broad range of financial products and services to consumers and small businesses.  Loan and lease products include residential mortgage loans, home equity lines of credit, automobile loans and leases, personal lines of credit, installment loans, and small business loans and leases.  Deposit products include checking, savings, and time deposit accounts.  Retail Banking also offers co-branded credit cards and some types of consumer insurance products.  Products and services from Retail Banking are delivered to customers through 67 branch locations and 379 ATMs throughout Hawaii and the Pacific Islands, e-Bankoh (on-line banking service), a 24-hour customer service center, and a mobile banking service.

Commercial Banking

Commercial Banking offers products including corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, and deposit products.  Commercial lending and deposit products are offered to middle-market and large companies in Hawaii and the Pacific Islands.  In addition, Commercial Banking offers deposit products to government entities in Hawaii. Commercial real estate mortgages focus on customers that include investors, developers, and builders predominantly domiciled in Hawaii.  Commercial Banking also includes international banking and provides merchant services to its customers.

Investment Services and Private Banking

Investment Services and Private Banking includes private banking and international client banking services, trust services, investment management, and institutional investment advisory services.  A significant portion of this segment’s income is derived from fees, which are generally based on the market values of assets under management.  The private banking and personal trust groups assist individuals and families in building and preserving their wealth by providing investment, credit, and trust services to high-net-worth individuals.  The investment management group manages portfolios utilizing a variety of investment products. Institutional client services offer investment advice to corporations, government entities, and foundations.  This segment also provides a full service brokerage offering equities, mutual funds, life insurance, and annuity products.

Treasury and Other

Treasury consists of corporate asset and liability management activities, including interest rate risk management and a foreign currency exchange business.  This segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, and short and long-term borrowings.  The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, and foreign exchange income related to customer-driven currency requests from merchants and island visitors.  The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Marketing, Human Resources, Finance, Credit and Risk Management, and Corporate and Regulatory Administration) provide a wide-range of support to the Company’s other income earning segments.  Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

Selected business segment financial information as of and for the three and nine months ended September 30, 2019 and 2018 were as follows:

(dollars in thousands)
Retail Banking

 
Commercial Banking

 
Investment Services and Private Banking

 
Treasury
and Other

 
Consolidated Total

Three Months Ended September 30, 2019
 

 
 

 
 

 
 

 
 

Net Interest Income
$
66,648

 
$
46,791

 
$
9,641

 
$
1,816

 
$
124,896

Provision for Credit Losses
3,084

 
(130
)
 
32

 
1,264

 
4,250

Net Interest Income After Provision for Credit Losses
63,564

 
46,921

 
9,609

 
552

 
120,646

Noninterest Income
22,964

 
8,739

 
13,663

 
1,141

 
46,507

Noninterest Expense
(59,358
)
 
(21,330
)
 
(15,840
)
 
(3,821
)
 
(100,349
)
Income Before Provision for Income Taxes
27,170

 
34,330

 
7,432

 
(2,128
)
 
66,804

Provision for Income Taxes
(6,547
)
 
(8,560
)
 
(1,959
)
 
2,314

 
(14,752
)
Net Income
$
20,623

 
$
25,770

 
$
5,473

 
$
186

 
$
52,052

Total Assets as of September 30, 2019
$
6,668,902

 
$
4,145,717

 
$
324,388

 
$
6,533,133

 
$
17,672,140

 
 
 
 
 
 
 
 
 


Three Months Ended September 30, 2018
 

 
 

 
 

 
 

 


Net Interest Income
$
66,927

 
$
46,240

 
$
10,574

 
$
(814
)
 
$
122,927

Provision for Credit Losses
3,229

 
69

 
—

 
502

 
3,800

Net Interest Income After Provision for Credit Losses
63,698

 
46,171

 
10,574

 
(1,316
)
 
119,127

Noninterest Income
19,814

 
6,241

 
13,526

 
1,901

 
41,482

Noninterest Expense
(51,806
)
 
(20,242
)
 
(15,657
)
 
(2,833
)
 
(90,538
)
Income Before Provision for Income Taxes
31,706

 
32,170

 
8,443

 
(2,248
)
 
70,071

Provision for Income Taxes
(7,943
)
 
(7,218
)
 
(2,226
)
 
4,249

 
(13,138
)
Net Income
$
23,763

 
$
24,952

 
$
6,217

 
$
2,001

 
$
56,933

Total Assets as of September 30, 2018
$
6,246,126

 
$
3,873,454

 
$
340,793

 
$
6,531,361

 
$
16,991,734

 
 
 
 
 
 
 
 
 


Nine Months Ended September 30, 2019
 

 
 

 
 

 
 

 


Net Interest Income
$
200,019

 
$
139,784

 
$
29,685

 
$
4,342

 
$
373,830

Provision for Credit Losses
7,852

 
1,141

 
14

 
2,243

 
11,250

Net Interest Income After Provision for Credit Losses
192,167

 
138,643

 
29,671

 
2,099

 
362,580

Noninterest Income
65,305

 
22,738

 
41,767

 
5,826

 
135,636

Noninterest Expense
(163,968
)
 
(63,545
)
 
(49,200
)
 
(9,418
)
 
(286,131
)
Income Before Provision for Income Taxes
93,504

 
97,836

 
22,238

 
(1,493
)
 
212,085

Provision for Income Taxes
(22,883
)
 
(22,507
)
 
(5,862
)
 
6,937

 
(44,315
)
Net Income
$
70,621

 
$
75,329

 
$
16,376

 
$
5,444

 
$
167,770

Total Assets as of September 30, 2019
$
6,668,902

 
$
4,145,717

 
$
324,388

 
$
6,533,133

 
$
17,672,140

 
 
 
 
 
 
 
 
 


Nine Months Ended September 30, 2018
 

 
 

 
 

 
 

 


Net Interest Income
$
197,007

 
$
133,148

 
$
30,987

 
$
1,237

 
$
362,379

Provision for Credit Losses
10,417

 
(276
)
 
(60
)
 
1,344

 
11,425

Net Interest Income After Provision for Credit Losses
186,590

 
133,424

 
31,047

 
(107
)
 
350,954

Noninterest Income
58,665

 
17,395

 
41,941

 
8,814

 
126,815

Noninterest Expense
(158,344
)
 
(60,432
)
 
(48,264
)
 
(8,673
)
 
(275,713
)
Income Before Provision for Income Taxes
86,911

 
90,387

 
24,724

 
34

 
202,056

Provision for Income Taxes
(21,707
)
 
(20,782
)
 
(6,518
)
 
12,642

 
(36,365
)
Net Income
$
65,204

 
$
69,605

 
$
18,206

 
$
12,676

 
$
165,691

Total Assets as of September 30, 2018
$
6,246,126

 
$
3,873,454

 
$
340,793

 
$
6,531,361

 
$
16,991,734